How to Save Tax on Private School Fees

March 10, 2025

How to Save Tax on Private School Fees Using a Family Trust – Especially as VAT on Fees Rises

Private school fees in the UK are already a significant financial commitment, and with the planned introduction of VAT on private school fees, the cost is set to rise even further. However, with careful tax planning, families can reduce this burden and save up to £5,000 per child per year using a family trust.

VAT on Private School Fees – What’s Changing?

The UK government has announced plans to remove the VAT exemption on private school fees, meaning that fees could increase by 20%. For many families, this could add thousands of pounds per year to their education costs.

For example:

• A school charging £15,000 per year will see fees rise to £18,000 with VAT added.

• A school charging £25,000 per year will rise to £30,000 under the new VAT regime.

This increase makes tax-efficient planning even more critical for parents looking to mitigate costs.


Using a Trust to Save on School Fees

One of the most effective ways to legally reduce the tax burden when paying for private school fees is through the use of a family trust. This allows families to take advantage of a child’s personal tax-free allowance (£12,570 per year) to pay school fees in a tax-efficient manner.

Here’s how it works:

1. A Grandparent (or Someone Who Isn’t a Parent) Sets Up a Trust

• The key rule is that parents cannot set up the trust, or HMRC will treat the income as theirs.

• A grandparent, for example, establishes the trust and transfers shares in a business into it.

2. Business Dividends Are Paid Into the Trust

• The trust holds shares in a business and receives dividend income.

• This income is then distributed to the child as a beneficiary.

3. Child Uses Their Personal Tax-Free Allowance

• A child has a personal tax-free allowance of £12,570 per year.

• If the trust distributes dividend income to them, it can be entirely tax-free if kept within this allowance.

4. Significant Tax Savings

• A parent paying 40% or 45% tax would normally need to earn significantly more to cover school fees after tax.

• With this trust structure, the dividends are taxed at the child’s much lower (or even zero) tax rate.

Example of Tax Savings

If two children are in private school, this could save £10,000 per year in tax for a higher-rate taxpayer.

Why This Matters More with VAT on School Fees

• The VAT increase means school fees will be even higher, making tax-efficient planning essential.

• Using this trust structure can offset some of the VAT impact, helping families keep education costs manageable.

• By saving up to £5,000 per year in tax, families can partially or fully cover the additional VAT charge.

Key Considerations

• The Trust Must Be Set Up Correctly: It must be established by someone other than the parents to avoid HMRC taxing it as parental income.

• Professional Advice is Crucial: Trusts are complex, and incorrect setup could negate the tax benefits.

• Not Suitable for All: This strategy works best for families with business-owning relatives who can distribute dividends.

Final Thoughts

With the looming VAT increase on private school fees, tax-efficient planning is more important than ever. Using a family trust can legally reduce tax liabilities and help offset the additional 20% VAT charge, potentially saving families thousands per year.

If you’re concerned about rising school fees and want to explore tax-efficient planning options, contact Enso Accountants for expert guidance on structuring your finances effectively.

Wrapping Up 2024 And A Look Back Ahead To 2025

March 10, 2025
Hi Everyone, Welcome to my final newsletter of 2024—and what a year it’s been! Reflecting on the past 12 months, it’s clear that 2024 has been a highly consequential year, even in an age when we’ve had quite a few once-in-a-generation events. It’s been a whirlwind for me, from attending thrilling sporting events like the Olympics to commenting on major financial shakeups and adding new services to the Enso brand . We saw the internet go down and an unexpected Oasis reunion (not to mention their remarkable ability to part me from my money). On the same note, we’ve had a change of government with all the financial ramifications of that democratic choice already playing out. On the business front, my predictions about AI transforming every aspect of our lives were spot on. This technology now influences how we engage with commerce, government, and entertainment. However, I see this technology making the management of your business finances increasingly insightful and responsive, which is precisely why I started Enso in 2018. Of course, we have the upcoming inauguration of an orange-tinged POTUS on January 20, 2025, which promises to bring even more twists to an already unpredictable landscape. But before we face 2025, let’s focus on the festive season. The holidays are an insane period for many of my client’s businesses. So, to help out and as a follow-up to the success of my TikTok gift list for 2023 , here are my prime picks for this Christmas. It might save you some time and effort, especially if you find gift buying a chore. You’re welcome!

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Hi Everyone. Welcome to November 2024, which we enter on the back of the first Labour Budget in over 14 years. That’s why this newsletter is slightly behind the curve: I wanted to consider what impacts this fiscal event brings and how it might affect my clients. What a statement it was taking over an hour to present. It was long, detailed, radical, risky, and much-briefed to avoid the market-melting impacts of the Truss/Kwarteng budget. This meant macro impacts were marginal, with a few basis points on Gilts and temporary dips in the FTSE and the value of Sterling on international markets. Overall, it’s not too bad; we’ve seen much worse, but we must monitor these measures going forward. As the dust settled, we saw historic highs in taxation and higher borrowing levels via a fiscal rule change. But it was very much a statement of intent signalling the new government’s determination to stabilise and expand our indebted and tired economy after 14 years of Tory rule. Equally historic, it was the first Budget delivered by Rachel Reeves, the UK’s first female Chancellor. Underpinning it all was Labour’s vision for growth based on equality of opportunity, devolved power distribution, innovation, and green energy. As optimistic as the Budget seems in intent, like so much in life, it comes at a cost, and SMEs are now central to how the Chancellor will fund Labour’s economic mission. So here’s my summary and thoughts on the host of changes Reeves announced and what these might mean for you. Hold on to your hats!

The Trump Effect: Implications for UK Trade & Crypto

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Top New Year Business Resolutions To Thrive In 2025

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Happy New Year everyone. I hope your festivities passed as you hoped. Whether it was to either rest and recharge or become a social butterfly attending many parties and gatherings. However, it panned out for you; I hope you had a ‘good-un’! And now as 2025 dawns, it’s time to shake off the yuletide detritus, pack away the decorations and sell your unwanted presents on eBay! You might feel a little sad. It’s all over, you sigh. Don’t worry; that’s normal, but it’s time to trim our sails for the coming year and dive headlong into the promise of what’s to come. Many will commit to positively changing their lives at the start of the year. These so-called resolutions often founder within a few days. But don’t worry, that’s normal, too. You’re not alone in seeing these aspirations turn to dust as they rub against ‘real life’. But for those who follow through and keep to your commitments, I salute you. But maybe you could do the same exercise for your business. Every new year is brimming with opportunities for business growth, refreshed strategies, and new ideas, and always looking for opportunities to have a laugh along the way. As we know, the Trump administration is taking the reins in the US, which means the stage is set for an exciting ride for all of us. There’ll be opportunities and challenges galore. So, how can we get our business match fit for what’s to come? Here are some industry-tested pointers to help you take on the New Year and emerge as a winner. Let’s get into it!